UC-NRLF 


< 

REPORT 


OF  THE 


Commission  to  Investigate 
Tax  Laws 


STATE  Oft  NEW  JERSEY 
19I9| 


TRENTON,  N.  J. 
MACCREIAISH  &  QUIGLEY  Co.,  STATS  PRINTERS. 

1920 


REPORT 


OF  THE 


Commission  to  Investigate 
Tax  Laws 


STATE-  OF  NEW  JERSEY 
1919 


FRANK  B.  JESS,  Chairman,  Haddon  Heights 

CLARENCE  E.  CASE,  Somcrville 

ARTHUR  N.  PIERSON,  Westfield 

GEORGE  L.  RECORD,  Jersey  City 

GEORGE  T.  SMITH,  Jersey  City 


FRANK  D.  SCHROTH,  Secretary 


TRENTON,  N.  J. 
MACCREUJSH  &  QUIGLEY  Co.,  STATE  PRIKTERS. 

1920 


A7 


DOCUMENTS 
DEPl. 


Report  of  the  Commission  to  Investigate 

Tax  Laws. 


To  the  Governor  and  the  Legislature  of  New  Jersey: 

The  Commission  appointed  in  pursuance  of  Joint  Resolution 
No.  i,  of  the  1919  Session  of  the  Legislature,  to  "investigate  the 
operations  and  effect  of  the  tax  laws  of  this  State  and  to  recom- 
mend legislation  essential  to  an  equitable,  just  and  adequate 
system  of  taxation,"  herewith  submit  their  report: 

The  Commission  have  made  a  thorough  study  of  the  system 
of  taxation  in  New  Jersey,  with  respect  both  to  its  bases  and 
its  practical  operation.  We  have  also  investigated  the  systems 
of  several  other  States  in  which  we  had  reason  to  believe  pro- 
gress has  been  made  in  the  solution  of  problems  similar  to  those 
with  which  we  have  to  deal.  The  views  and  suggestions  have 
been  sought  of  those  who  had  a  prominent  part  in  the  framing 
of  recent  advanced  taxing  legislation,  as  well  as  of  those  officials 
who  have  been  charged  with  the  duty  of  putting  these  new  laws 
into  operation.  The  Commission  visited  the  city  of  Pittsburgh, 
for  the  purpose  of  ascertaining  at  first  hand  the  effects  of  the 
graded  tax,  as  applied  to  buildings  in  that  city  and  in  Scranton, 
under  the  law  passed  a  few  years  ago  by  the  Legislature  of 
Pennsylvania.  We  have  had  numerous  meetings  and  conferences, 
at  which  there  has  been  full  consideration  of  the  data  arid  infor- 
mation collated  by  the  Commission,  and  the  freest  discussion  of 
the  taxing  problem  in  all  of  its  chief  phases.  Varied  points  of 
view  have  been  represented  at  these  conferences,  and  an  earnest 
effort  has  been  made  to  reconcile  conflicting  opinions,  with  the 
hope  of  reaching  a  common  agreement  upon  essential  principles. 
It  has  not  been  possible  to  attain  this  result,  but  this  report 
embodies  the  conclusions  of  a  majority  of  the  Commission. 

Public  hearings  were  held  by  the  Commission  in  Jersey  City, 
Newark,  Paterson,  Trenton  and  Camden.  The  newspapers  of 
the  State  co-operated  cordially  with  the  Commission  by  giving 


advance  notices  of  all  hearings  and  by  reporting  its  proceedings, 
with  the  result  that  popular  interest  in  the  subject  of  taxation 
was  greatly   stimulated.      Indeed,   the   Commission   have  been 
deeply  impressed  with  the  fact  that  the  people  of  the  State  prob- 
ably never  before  more  clearly  recognized  the  important  place 
that  taxation  occupies  in  our  governmental  system,  or  were  more 
keenly  alive  to  the  need  for  real  reform  in  our  methods  of  rais- 
ing public  revenues.     This  has  been  evidenced,  not  only  by  the 
views  expressed  at  our  hearings  and  in  the  many  letters  and 
recommendations  we  have  received,  but  by  the  attention  given  to 
the  subject  by  organizations  representing  important  business  and 
industrial   interests,  and  by  the  widespread  discussion  of   the 
theme  in  the  public  press.     The  Jersey  City  Chamber  of  Com- 
merce, for  example,  appointed  a  special  committee  on  taxation, 
and  sent  a  representative  to  the  National  Tax  Conference,  held 
in  Chicago  in  June.     This  committee,  after  an  exhaustive  study 
of  the  subject,  submitted  to  the  Chamber  a  report  recommending 
radical  changes  in  our  taxing  system.    The  Manufacturers'  Asso- 
ciation of  New  Jersey,  at  its  annual  convention  in  May  last,  gave 
taxation  a  prominent  part  in  its  program,  and  provided  for  a 
committee  to  study  the  subject  and  report  its  recommendations. 
Other  important  organizations  and  civic  societies  have  likewise 
manifested  their  interest  in  this  vital  subject.     It  is  undoubtedly 
true  that  there  is  a  sentiment  in  the  State  in  favor  of  a  thorough 
overhauling  of  our  whole  scheme  of  taxation,  to  the  end  that 
there  may  be  a  more  equitable  distribution  of  the  tax  burden. 

The  Commission,  therefore,  has  approached  the  preparation  of 
this  report  with  a  deep  sense  of  responsibility,  and  with  a  full 
realization  of  the  opportunity  presented  to  perform  a  valuable 
public  service. 

The  system  of  taxation  in  New  Jersey  is  based  upon  the  prin- 
ciple of  the  general  property  tax.  The  theory  of  this  tax  is 
that  all  property,  except  that  which  is  expressly  exempted,  shall 
be  assessed  upon  the  ad  valorem  plan,  upon  the  basis  of  market 
value,  and  that  uniform  rates  of  taxation  shall  be  applied  to  the 
valuations  thus  determined. 

The  power  of  the  Legislature  to  devise  ways  and  means  of 
raising  revenues  for  the  support  of  government  is  co-extensive 


with  the  sovereignty  of  the  State,  subject  only  to  such  limitations 
at  the  Constitution  may  impose.  The  Constitution  has  left  to 
the  Legislature  wide  latitude  in  dealing  with  the  function  of 
taxation.  The  first  Constitution,  adopted  in  1787,  was  silent  upon 
the  subject.  The  Constitution  as  amended  in  1844  likewise  con- 
tained no  provision  with  respect  to  taxation.  It  was  not  until 
later  that  an  amendment  was  approved  which  was  incorporated 
as  a  part  of  the  Constitution,  as  paragraph  12,  section  VII,  of 
article  IV,  which  provides  that  ''property  shall  be  assessed  for 
taxes  under  general  laws,  and  by  uniform  rules,  according  to  its 
true  value." 

It  will  be  noticed  that  the  constitutional  restriction  thus  im- 
posed upon  the  legislative  power  of  taxation  relates  only  to  prop- 
erty. The  sovereign  right  of  the  people,  through  the  Legisla- 
ture, to  select  the  sources  of  public  revenue,  thus  is  left  unre- 
strained. The  only  limitation  is  that  in  the  taxation  of  prop- 
erty there  shall  be  equality  and  uniformity,  and  that  the  basis 
of  assessment  shall  be  true  value. 

The  power  of  the  Legislature  to  classify  property  for  taxation 
and  to  impose  taxes  of  a  special  kind,  for  example,  franchise 
taxes,  has  been  established  by  judicial  decisions.  The  earliest 
legislative  attempt  at  classification  and  the  application  of  a 
special  rate  to  a  portion  of  the  class  resulted  in  the  Rail- 
road Tax  Acts,  which  were  sustained  by  the  highest  judicial 
authority  and  are  still  in  successful  operation.  The  most 
recent  example  of  classification  is  furnished  by  the  act  which 
segregates  bank  stock  for  taxation  and  applies  a  flat  rate  to  the 
value  of  the  shares.  The  Franchise  Taxes,  which  are  an  im- 
portant feature  of  the  State's  fiscal  scheme,  are  another  illustra- 
tion of  the  legislative  power  to  select  sources  of  revenue  without 
constitutional  restriction. 

It  will  thus  be  seen  that  our  adherence  to  the  general  property 
tax  as  the  chief  means  of  raising  the  revenue  needed  for  local 
government  is  due,  not  to  necessity,  but  to  choice  or  inertia.  It 
may  be  stated  as  a  fact  which  cannot  be  controverted  that  re- 
liance upon  the  general  property  tax  is  the  chief  cause  of  the 
inequalities  and  unsatisfactory  operation  of  our  taxing  system. 


Our  experience  with  this  tax  has  not  differed  from  that  of  other 
jurisdictions.  The  property  tax  as  a  fiscal  device  has  great 
antiquity  to  commend  it,  but  nowhere,  except  in  Switzerland 
and  in  most  of  the  American  States,  is  it  still  relied  upon  as  a 
principal  tax.  As  a  supplementary  tax  it  continues  to  have  an 
important  place  in  European  fiscal  systems,  but  as  a  sole  reliance 
it  is  almost  obsolete  in  Europe,  and  as  such  is  falling  into  in- 
creasing disfavor  in  this  country.  All  administrators  and  all 
students  of  taxation  concede  that  as  a  means  of  equitable  taxa- 
tion it  has  broken  down  and  is  a  complete  failure. 

That  the  present  system  of  taxation  in  New  Jersey,  based 
upon  the  general  property  tax,  is  inherently  and  seriously  defec- 
tive has  long  been  recognized. 

The  Commission  to  Investigate  Tax  Assessments,  appointed 
in  1912,  reported : 

"However  well  it  (the  general  property  tax)  may  have 
worked  in  early  days  it  has  broken  down  here  as  everywhere 
under  modern  industrial  conditions.  To  assess  and  tax  every 
kind  of  property,  real  and  personal,  by  the  same  rule  and  at  the 
same  rate,  is  not  an  equitable  method  of  measuring  contributions 
to  the  public  revenue.  Such  a  plan  leaves  out  of  account  the 
relative  value  of  benefits  received  or  privileges  enjoyed  from 
government  by  different  kinds  of  property." 

President  Wilson,  in  his  message,  as  Governor  of  New  Jersey, 
to  the  Legislature  of  1912,  said: 

"Along  with  this  systematic  reconsideration  of  our  methods 
of  assessment  and  taxation  should  go  a  very  thorough  examina- 
tion of  our  tax  system  itself,  its  basis  and  principle.  Perhaps  we 
shall  be  in  a  better  position  after  making  our  machinery  suit- 
able and  adequate,  to  discover  the  weak  places,  in  the  bases  of 
taxation.  Sooner  or  later  we  shall  be  obliged  to  examine  them 
to  the  bottom." 

Governor  Fielder  declared  in  his  1915  message: 

"I  know  that  the  great  majority  of  our  citizens  are  willing 
to  bear  their  just  share  of  the  fair  cost  of  government,  but  they 
rightfully  object  to  excessive  expenses  and  inequality  in  assess- 
ment. *  *  *  I  renew  my  recommendations  that  assessors 
be  no  longer  elected,  but  be  appointed  under  Civil  Service  rules 


for  assessment  districts ;  that  they  be  paid  proper  salaries ;  that 
their  assessments  be  made  under  uniform  rules  to  be  prepared 
by  some  higher  tax  authority." 

Governor  Edge,  discussing  taxation  in  his  first  message,  said : 

"The  question,  or  rather  its  inequalities,  is  becoming,  as  gov- 
ernment costs  ascend,  more  and  more  serious." 

Governor  Runyon,  in  an  address  delivered  before  a  conference 
of  tax  officials,  spoke  as  follows : 

"Funds  are  to  be  raised,  moneys  are  made  necessary  absolutely, 
and  they  must  from  henceforth,  I  think,  be  raised  from  some 
new  source,  or  else  there  must  be  a  readjustment  of  the  revenues 
from  the  old  sources." 

PERSONAI,  PROPERTY  TAX. 

The  worst  fruits  of  the  general  property  tax  are  produced  in 
its  application  to  personal  property.  It  is  in  this  field  that  it 
breaks  down  most  completely.  Here  its  capacity  to  work  in- 
equality is  most  signally  exemplified.  As  a  means  of  measur- 
ing taxable  ability  or  determining  taxable  liability,  it  is  a  lament- 
able failure. 

All  authorities  on  taxation  are  in  accord  with  Professor  R.  A. 
Seligman,  the  eminent  expert  in  economics,  when  he  says :  "Under 
modern  economic  conditions,  property,  and  especially  personal 
property,  is  no  longer  a  satisfactory  index  of  taxpaying  ability. 
Wealth  in  modern  times  is  derived  to  a  continually  larger  ex- 
tent from  relations,  from  opportunities,  and  from  all  manner  of 
exertion  more  or  less  indirectly,  or  not  at  all,  connected  with 
property." 

The  fundamental  shortcomings  of  the  personal  property  tax 
are  chiefly  that  it  cannot  be  administered  so  as  to  do  justice  to  all 
taxpayers,  and  that  as  a  measure  of  taxpaying  ability  it  is  inex- 
act, inequitable  and  unscientific. 

One  of  the  chief  difficulties  of  administration  of  this  tax  is  that 
it  imposes  an  impossible  task  upon  the  assessor.  It  requires  that 
he  must  be  able  to  go  into  the  average  home  and  appraise  its 
household  goods.  When  he  comes  to  the  homes  of  the  wealthy, 


8 

he  must  be  an  authority  upon  painting  and  sculpture  and  tell  at 
a  glance  what  a  picture  or  a  piece  of  statuary  would  sell  for  in 
the  market.  He  must  also  have  an  accurate  acquaintance  with 
the  market  prices  of  rugs,  tapestries  and  window  draperies.  He 
must  have  an  expert  knowledge  of  the  value  of  jewelry  and 
precious  stones.  He  must  be  able  to  determine  what  it  would 
cost  to  reproduce  an  electric  light,  gas  or  trolley  plant.  He 
must  know  the  market  quotations  on  textile  and  other  machinery 
used  in  manufacturing.  He  must  have  an  accurate  knowledge 
of  the  value  of  raw  material  and  the  finished  products  of  manu- 
facturing industries  and  of  the  merchandise  of  the  grocer,  the 
butcher,  the  clothing  merchant,  the  department  store.  He  must 
know  the  market  price  of  stocks  and  bonds  and  other  securities, 
and  have  a  sufficient  knowledge  of  the  law  and  judicial  decisions 
to  determine  which  of  them  are  subject  to  taxation.  He  must 
know  besides,  a  great  deal  else  that  no  one  man  ever  can  know. 
Assuming  that  one  possessing  all  of  these  qualifications  could  be 
found,  the  problem  would  be,  first,  to  induce  him  to  accept  the 
office  of  assessor,  with  its  meagre  pay  and  uncertain  tenure,  and 
second,  to  get  him  elected  or  appointed  to  the  position. 

In  our  State,  the  personal  property  tax  lends  itself  to  the 
grossest  kind  of  discrimination  and  the  production  of  the  most 
glaring  inequalities.  At  the  hearings  held  by  the  Commission, 
there  was  practical  unanimity  of  opinion  upon  one  point,  and 
that  was  in  condemning  the  personal  property  tax.  Spokesmen 
for  business  and  industrial  interests  especially  were  strong  in 
their  condemnation. 

Only  two  methods  are  worthy  of  serious  consideration  in  the 
attempt  to  deal  effectively  with  this  phase  of  the  taxing  problem. 
One  is  that  of  classifying  personal  property  for  the  purpose  of 
taxation;  the  other  is  that  of  putting  a  personal  income  tax  in 
place  of  the  personal  property  tax. 

The  first  method  is  a  palliative.  It  would  be  a  step  in  advance. 
If  personal  property  is  to  be  taxed  at  all,  it  ought  to  be  classified 
for  taxation,  that  is,  certain  kinds  of  personal  property  should  be 
taxed  in  a  special  way  at  a  special  rate.  The  experience  of 
other  States,  where  this  reform  has  been  adopted,  affords  no 


basis  for  the  hope  that  a  classified  property  tax  would  greatly 
ameliorate  present  conditions.  We  were  unable  to  find  any  in- 
stance where  classification  had  produced  satisfactory  results  with 
respect  to  the  taxation  of  intangible  property. 


INCOME  TAX. 

The  second  remedy  suggested,  namely,  the  substituting  of  in- 
come for  personal  property  as  the  basis  of  taxation  is  infinitely  to 
be  preferred  to  the  plan  of  classification.  The  personal  income 
tax  is  a  much  more  certain,  effective  and  equitable  method  of  en- 
forcing the  principle  that  every  person  having  taxable  ability 
should  pay  a  direct  tax  to  the  government  under  which  he  is 
domiciled.  It  is  vastly  superior  to  any  form  of  personal  property 
tax  as  a  means  of  raising  the  revenues  of  government  with  the 
greatest  equality,  certainty,  convenience  and  economy. 

Other  important  considerations  in  favor  of  an  income  tax  are 
that  it  is  fair  in  principle;  that  it  can  be  effectively  administered 
by  a  State,  as  has  been  amply  demonstrated  in  Wisconsin  and 
Massachusetts;  that  it  is  a  form  of  taxation  which  meets  with 
popular  favor  at  the  present  time.  The  expressions  of  senti- 
ment at  the  hearings  held  by  the  Commission  furnish  con- 
clusive evidence  of  this  fact.  The  same  sort  of  public  opinion 
was  reflected  in  the  action  of  the  State  Conference  of  Officials 
Charged  with  the  Administration  of  the  Tax  Laws  of  New 
Jersey,  held  at  Trenton  in  July  last,  in  passing  unanimously  a 
resolution  approving  the  adoption  of  the  income  tax.  It  is  also 
to  be  noted  that  the  income  tax  is  an  integral  feature  of  the 
model  system  of  State  and  local  taxation  recommended  by  the 
committee  appointed  by  the  National  Tax  Association.  The  con- 
clusions of  that  committee,  composed  as  it  was  of  the  most 
eminent  tax  experts  of  the  United  States,  surely  are  entitled  to 
the  serious  consideration  of  those  charged  with  the  duty  of 
devising  improved  systems  of  taxation.  In  addition  to  this 
argument  is  one  which  now  is  of  peculiarly  practical  importance 
in  our  State.  Many  thousands  of  the  citizens  of  northern  New 
Jersey  deriving  their  incomes  from  businesses  and  employments 


10 

in  New  York  are  liable  to  the  income  tax  of  that  State.  They 
will  thus  be  subjected  to  taxation  in  two  jurisdictions,  unless 
by  paying  an  income  tax  in  New  Jersey,  they  can  take  advantage 
of  that  reciprocal  provision  of  the  New  York  law  which  would 
relieve  them  in  part  at  least  from  the  burden  imposed  unjustly 
in  another  State.  Standing  alone,  of  course,  this  is  an  argu- 
ment of  little  weight  in  favor  of  the  adoption  of  an  income  tax 
in  New  Jersey,  especially  in  view  of  the  fact  that  the  objection- 
able feature  of  the  New  York  law  has  been  attacked  by  the 
Attorney  General  of  New  Jersey,  and  is  under  review  in  the 
United  States  Supreme  Court.  If  it  should  be  sustained,  how- 
ever, the  residents  of  New  Jersey  subject  to  its  exactions  are 
likely  to  be  insistent  upon  some  measure  of  relief. 

Our  attention  has  been  called  to  the  Survey  of  the  Govern- 
ment, Finances  and  Administration  of  the  City  of  Newark, 
recently  completed  by  the  Bureau  of  Municipal  Research. 
Among  the  recommendations  of  the  Bureau  as  to  taxation  and 
revenues  are  the  abolition  of  the  tax  on  intangible  personal  prop- 
erty, the  establishment  of  a  personal  income  tax  and  of  a  busi- 
ness tax. 

It  must  be  borne  in  mind  that  in  suggesting  a  tax  on  incomes 
we  are  not  proposing  the  imposition  of  an  additional  tax,  but 
the  substitution  of  one  form  of  taxation,  proved  to  work  fairly 
and  satisfactorily  in  practice,  for  another  form  which  works 
unfairly  and  unsuccessfully.  Thus  the  purpose  is  not  to  increase 
the  tax  burden,  but  to  distribute  it  more  equitably.  While  in- 
creasing public  expenditures  may  make  necessary  the  provision 
of  additional  revenue  or  the  rinding  of  new  sources  of  revenue, 
our  problem  at  present  primarily  is  to  put  the  raising  of  our 
revenues  upon  that  basis  which  will  insure  a  contribution  to 
the  support  of  the  government  from  all  citizens  in  proportion 
to  their  ability  to  pay  and  to  the  benefits  received. 

Such  an  income  tax  as  is  here  favored  would  be  levied  upon 
persons  in  respect  to  their  entire  net  incomes  from  all  sources. 
It  would  not  apply  to  business  concerns,  either  incorporated  or 
unincorporated.  Such  concerns  would  be  subject  to  a  tax  upon 
their  business  where  carried  on,  in  accordance  with  the  plan 


II 

hereinafter  proposed.  This  is  in  line  with  the  model  plan  pro- 
posed by  the  National  Tax  Association,  and  upon  full  consid- 
eration, commends  itself  to  our  judgment  as  best  fitted  to  meet 
our  existing  needs.  Exemptions  should  probably  be  the  same 
in  amount  as  those  allowed  under  the  Federal  Act.  The  rates 
should  not  be  differentiated  in  accordance  with  the  sources  from 
which  the  income  is  derived,  but  should  be  progressive,  so  that 
the  lower  rates  would  apply  to  the  smaller  incomes  and  the 
higher  rates  to  the  larger  incomes.  The  minimum  rate  should 
not  be  less  than  one  per  cent.,  and  the  maximum  not  over  six 
per  cent.  From  the  statistics  which  the  Commission  has  been 
able  to  study,  it  is  evident  that  these  rates,  in  addition  to  the 
properly  graduated  business  tax,  would  fully  compensate  for  the 
loss  resulting  from  the  exemption  of  personal  property.  This 
brings  us  to  the  phase  of  the  problem  which  presents  some  dif- 
ficulties, namely,  the  distribution  of  the  income  tax.  The  chief 
difficulty  is,  not  to  find  a  proper  basis  of  apportionment,  but  to 
devise  a  method  which  will  protect  the  taxing  districts  from 
any  diminution  of  revenue.  The  plan  adopted  in  Massachusetts 
to  meet  a  similar  situation  was  the  obvious  one  of  providing  that 
the  income  tax  should  be  so  distributed  as  to  reimburse  the 
municipalities  for  an  amount  equal  to  the  loss  sustained  by  the 
exemption  of  personal  property.  The  same  method  of  apportion- 
ment could  be  adopted  in  New  Jersey  as  a  tentative  plan.  The 
actual  operation  of  an  income  tax  act  would  speedily  indicate  the 
most  practicable  basis  of  apportionment. 

TAX   ON   BUSINESS. 

To  take  the  place  of  the  personal  property  tax  levied  upon 
business  and  industrial  concerns,  we  recommend  a  tax  upon 
business.  This  tax  should  be  levied  upon  the  net  income  derived 
from  business  done  within  the  State  at  the  place  where  the  busi- 
ness is  carried  on.  In  the  case  of  interstate  concerns,  the  tax 
should  be  in  proportion  to  the  business  carried  on  in  New  Jersey. 
This  proportion  could  readily  be  determined  by  practicable 
methods,  such  for  example  as  those  which  have  been  adopted  in 
New  York,  Massachusetts  and  Wisconsin,  and  which  take  into 
account  all  the  factors  which  must  be  considered  in  order  to 


12 

arrive  at  a  just  result.  The  rate  of  business  tax  should  be 
moderate,  as,  like  the  income  tax,  it  would  be  in  addition  to  the 
tax  paid  upon  real  estate.  Where  it  has  large  tracts  of  land 
and  extensive  buildings,  the  burden  it  imposes  upon  the  gov- 
ernment is  compensated  for  by  the  property  tax.  Like  the  in- 
come tax  also,  the  business  tax  would  be  in  lieu  of  the  personal 
property  tax,  and  rates  would  need  to  be  so  fixed  as  to  pro- 
duce the  equivalent  of  the  revenue  produced  by  the  source  sup- 
planted. The  gain  to  business  and  industry  would  be  the  ad- 
vantage that  would  accrue  to  them  from  a  business  taxation 
which  would  be  fixed  and  certain,  and  which  would  save  them 
from  the  unequal  and  unjust  exactions  which  are  the  outstanding 
features  of  the  present  system. 

Here  again  it  should  be  emphasized  that  the  proposal  is  not 
to  create  an  additional  burden,  but  to  equalize  the  burden  upon 
a  fair  basis.  It  is  undoubtedly  true  that  the  effect  of  the  business 
tax  would  be  to  exact  a  larger  contribution  for  the  support  of  the 
government  from  some  concerns  than  they  now  pay,  just  as  the 
income  tax  would  inevitably  impose  heavier  burdens  upon  some 
of  the  taxpayers  than  they  now  bear.  That  result,  however, 
would  come  only  in  those  cases  where,  under  present  laws,  busi- 
ness is  not  bearing  its  just  share  of  the  burden.  The  general 
result  would  be  a  more  equal  distribution,  and  there  would  be 
no  shifting  of  the  burden  save  in  those  instances  where  the 
shifting  is  in  fairness  essential  to  that  result. 

We  realize  that  the  recommendation  that  the  personal  property 
tax  be  abolished  and  that  an  income  and  business  tax  take  its 
place  may  seem  to  many  people  revolutionary  measures.  They 
are  in  fact  revolutionary  in  the  sense  that  they  would  change 
radically  present  conditions.  But  radical  changes  are  needed 
to  produce  satisfactory  results. 

If  radical  changes  are  not  to  be  made,  we  feel  strongly  that 
the  present  system  should  be  let  alone.  There  should  be  no 
tinkering  that  does  not  go  to  the  root  of  things.  A  mere  scratch- 
ing of  the  surface  here  and  there  will  accomplish  nothing  worth 
while. 

It  is  a  fact  that  cannot  be  controverted  that  the  personal  prop- 
erty tax  is  not  working  satisfactorily  and  successfully  in  this 


13 

State.  We  believe  it  to  be  equally  true  that  it  cannot  be  made 
to  work  successfully  and  satisfactorily.  We  are  sure  that  the 
income  tax  and  business  tax  will  work  with  much  greater  suc- 
cess and  satisfaction.  We  base  these  conclusions  upon  the 
experiences  of  other  States,  upon  the  opinions  of  practically  all 
tax  officials  and  experts,  and  upon  our  own  study  of  the  sub- 
ject with  special  reference  to  the  operation  of  the  system  in 
New  Jersey. 

The  situation  is  tersely  summed  up  by  Mr.  Justice  Charles  C. 
Black  in  his  excellent  work  on  "New  Jersey  Law  of  Taxation," 
where  he  says : 

"The  system  of  taxation  now  in  force,  for  raising  the  local 
revenues,  by  which  everything  is  attempted  to  be  taxed  and 
valued  at  one  uniform  rate,  except  certain  classes  of  property, 
declared  exempt  from  taxation  by  statute,  may  have  answered 
the  requirements  of  the  times  and  conditions  of  society  when 
adopted.  The  truth  is,  the  later  system,  like  the  former,  has 
completely  broken  down  in  practice,  and  for  the  same  cause,  viz., 
it  is  an  impractical  theory;  and  experience  abundantly  demon- 
strates the  fact  that  it  cannot  be  applied  successfully  under  the 
present  complex  conditions  of  the  body  politic,  and  to  all  the 
many  and  varied  forms  which  property  now  assumes.  Modern 
inventions,  the  natural  development  of  the  country,  the  rapid 
growth  of  our  cities,  the  enormous  increase  of  corporations 
and  corporate  property,  have  created  and  produced  so  many  dif- 
ferent classes  of  property,  so  easily  and  readily  concealed  from 
the  eye  and  grasp  of  the  assessor,  and  so  readily  moved  from 
place  to  place  and  from  State  to  State,  that  the  attempt  to  assess 
and  value  all  such  property  by  the  same  machinery  and  process  of 
former  years,  is  a  comparative  failure,  particularly  so  in  the 
growing  cities." 

IMPROVING  METHODS  OF  ASSESSMENT. 

There  is  practical  unanimity  of  opinion  as  to  the  imperative 
need  of  improving  our  methods  of  assessment.  Any  system 
of  taxation  will  work  well  or  badly  in  proportion  to  the  extent 
to  which  the  primary  assessment  is  good  or  bad.  The  initial 


14 

steps  therefore  are  the  most  important  in  the  whole  taxing  pro- 
cess. This  fact  has  general  recognition  in  theory,  but  js  -given 
scant  consideration  in  practice.  All  boards  and  commissions 
and  special  investigators  who  have  studied  the  subject  a^ree 
that  much  should  be  done  and  that  much  may  be  done  to  im- 
prove the  work  of  local  assessment.  Among  the  suggestions 
which  have  been  made  to  this  end  are  that  assessors  should  be 
appointed  rather  than  elected;  that  they  should  have  reasonable 
tenure  of  office,  and  that  they  should  be  better  paid.  We  concur 
in  all  these  suggestions,  but  must  point  out  that  none  of  them 
nor  all  of  them  together  will  necessarily  produce  better  assess- 
ments. Much  will  still  depend  upon  the  personal  equation.  Two 
things  are  essential:  First,  that  the  assessor  shall  be  competent 
and  courageous,  and,  second,  that  he  shall  have  efficient  aid  and 
direction  in  the  performance  of  his  duties. 

The  first  qualification  might  be  fairly  well  insured  by  making 
a  civil  service  examination  requisite  to  appointment.  The  second 
should  be  provided  by  means  of  a  thorough  system  of  super- 
vision, under  State  control,  modelled  on  the  Wisconsin  plan. 
The  State  Board  of  Taxes  and  Assessment  should  be  empowered 
to  divide  the  State  into  a  small  number  of  assessment  districts, 
having  regard  to  population  and  property  valuation.  Most  of 
these  districts  could  comprise  more  than  one  county,  and  they 
should  be  so  arranged  that  no  county  would  be  divided.  For 
each  district  there  should  be  appointed  a  supervisor  of  assess- 
ments selected  from  civil  service  lists,  after  competitive  exami- 
nations, and,  so  far  as  practicable,  chosen  from  the  districts 
in  which  they  are  to  serve.  Such  supervisors  should  be  required 
to  give  their  whole  time  to  their  duties.  They  should  be  clothed 
with  adequate  authority  to  supervise  and  direct  and  co-operate 
in  the  work  of  local  assessors.  They  should  have  all  the  powers 
of  the  local  assessor  for  the  examination  of  persons  and  property 
and  for  the  discovery  of  property  subject  to  taxation.  They 
should  have  the  power,  under  the  direction  of  the  State  Board, 
to  value  and  re-assess  property;  to  add  to  the  tax  lists  prop- 
erty omitted.  They  should  also  be  required  to  examine  and 
test  the  work  of  local  assessors  during  its  progress,  and  to  report 


to  the  State  and  county  boards  the  relative  assessed  and  true 
value  of  property  in  each  taxing  district,  giving  in  detail  the 
data  and  other  information  on  which  their  estimates  are  based. 

It  will  be  argued,  of  course,  that  the  adoption  of  the  plan 
here  proposed  would  create  new  offices  and  increase  the  public 
payroll.  That  is  true.  While  in  these  times,  when  the  cost  of 
government  is  an  undoubted  factor  in  the  high  cost  of  living, 
we  should  be  exceedingly  cautious  in  making  new  requisitions 
upon  public  revenues,  the  additional  cost  of  assessment  involved 
in  the  recommendation  above  briefly  outlined  would,  in  our  judg- 
ment, speedily  justify  itself,  not  only  in  a  better  administration 
of  the  tax  laws,  but  in  materially  augmented  public  revenues. 
No  private  business  concern  would  hesitate  to  increase  its  cost 
of  operation  when  the  returns  therefrom  were  so  certain  and 
substantial  as  those  which  would  surely  come  from  putting  OUT 
system  of  assessment  upon  a  proper  basis. 

It  may  be  urged,  too,  that  if  we  should  adopt  the  income  and 
business  tax  in  place  of  the  personal  property  tax,  the  local 
assessors  would  be  relieved  of  a  large  part  of  their  present  bur- 
den. That  also  is  true,  but  in  that  event  the  district  supervisors 
could  serve  as  assessors  of  income,  and,  in  addition,  co-operate 
in  the  valuation  of  real  property. 

It  is  undoubtedly  true  that  in  New  Jersey,  as  in  all  other 
States,  up  to  a  relatively  recent  period,  the  function  of  the  as^ 
sessor  has  not  been  accorded  the  attention  it  clearly  deserves  in 
the  structure  of  fiscal  systems.  The  position  of  assessor  has 
been  generally  regarded  as  an  office  of  minor  significance.  As 
a  matter  of  fact,  it  is,  in  certain  vital  respects,  the  place  of  great- 
est importance  in  every  government.  This  is  especially  true  in 
those  jurisdictions,  like  ours,  where  the  plan  of  the  general  prop- 
erty tax  prevails.  Primarily,  the  assessor  is  clothed  with  plen- 
ary powers  in  determining  the  portion  of  the  public  burden 
which  every  person  shall  bear.  The  provision  made  in  our 
statute  for  a  review  of  the  assessor's  judgment  is  intended  to 
safeguard  the  taxpayer  from  unjust  or  inequitable  exactions. 
This  purpose  is  achieved  in  those  specific  instances  in  which  the 
taxpayer  invokes  the  right  of  appeal.  But  the  correction  of 


i6 

erroneous  assessments  by  reviewing  boards  can  never  do  exact 
justice  or  be  more  than  a  partial  remedy  in  a  small  number  of 
sporadic  cases.  The  power  of  review  is  essential  to  any  system 
of  assessment,  but  it  is  a  cure,  rather  than  a  preventative  of  tax 
ills,  and  in  the  field  of  taxation,  no  less  than  in  the  domain  of 
physiology,  preventatives  are  much  to  be  preferred  to  cures. 

It  is  of  first  importance,  therefore,  that  the  assessment  of 
property  should  be  placed  upon  the  highest  plane  of  efficiency. 
The  plan  we  propose  for  effective  supervision  of  the  work  of  the 
primary  assessment  will,  if  adopted,  unquestionably  bring  about 
a  vast  improvement  in  the  valuation  of  property  for  taxation, 
and  a  consequent  betterment  in  the  operation  of  the  entire  sys- 
tem. Indeed,  adequate  supervision  is  second  only  in  point  of 
importance  to  the  initial  process  in  taxation. 

The  plan  of  having  one  or  more  local  assessors  or  a  board  of 
assessors  for  each  taxing  district  is  a  feature  of  the  present  sys- 
tem which  cannot  be  regarded  as  ideal,  but  it  is  one  which  proba- 
bly will  have  to  be  accepted  as  the  best  that  can  be  secured  in 
the  present  state  of  public  opinion.  Each  taxing  district  is  a 
distinct  governmental  unit,  and  popular  sentiment  runs  strongly 
against  any  proposal  which  seems  to  restrict  or  interfere  with 
the  right  of  home  rule.  For  this  reason,  suggestions  which 
have  been  made  that  assessment  districts  be  enlarged  always  have 
met  with  vigorous  opposition.  It  is  true  that,  as  the  State  and 
county,  equally  with  the  municipality,  have  a  substantial  interest 
in  the  taxation  of  property,  the  making  of  the  assessment  is  not 
a  matter  purely  of  local  concern.  An  improper  assessment  does 
injury,  not  only  to  those  taxpayers  who  are  immediately  affected 
by  it,  but  is  a  public  wrong  whose  consequences  are  suffered  by 
all  other  taxpayers.  Home  rule  in  the  assessment  for  taxation 
is  a  palpable  misnomer,  and  does  violence  to  the  principle  of 
equality  and  uniformity  required  by  the  Constitution.  So  strong, 
however,  is  the  attachment  to  the  sentiment  that  in  taxation,  as 
in  all  other  activities  within  the  municipal  sphere,  local  control 
should  be  recognized,  that  we  deem  it  futile  at  this  time  to  recom- 
mend any  change  in  the  scheme  for  making  the  primary  assess- 
ment. We  are  the  more  willing  to  acquiesce  in  the  continuance 


17 

of  this  plan  for  the  reason  that  we  are  satisfied  it  can  be  made 
to  work  satisfactorily  under  the  supervisory  direction  we  have 
proposed.  We  are,  however,  prepared  to  urge  strongly  certain 
important  changes  in  the  existing  system  with  respect  to  the 
selection  and  tenure  of  the  local  assessor.  These  are  that  the1 
assessor  be  appointed  rather  than  elected,  that  his  compensation 
be  made  commensurate  with  the  duties  of  the  office,  and  that  he 
shall  not  be  removed  except  for  proved  incompetence,  neglect  of 
duty,  or  violation  of  the  law  or  rules  applicable  to  the  position. 

APPOINTMENT   OF   ASSESSORS. 

The  power  of  appointment  should  be  lodged  in  the  local  gov- 
erning body.  The  choice  made  in  that  way  is  more  likely  to  give 
greater  consideration  to  special  fitness  for  the  office  than  the 
voters  can  possibly  give  in  the  hurly-burly  of  a  general  election. 
The  responsibility  for  the  selection,  moreover,  is  centralized,  and 
is  likely  to  be  exercised  with  due  regard  to  the  public  interest. 
The  assessor  also  is  protected  against  the  temptation  so  to  use 
the  powers  of  his  office  as  to  promote  his  prospects  as  a  candi- 
date in  a  subsequent  campaign.  The  likelihood  of  this  result 
would  be  strengthened  by  coupling  with  the  appointment  the 
provision  for  tenure.  This  would  insure  the  continuance  in 
office  of  competent  and  efficient  assessors.  It  would  gradually 
build  up  a  strong  personnel  in  the  assessing  body.  It  would  go 
as  far  as  it  is  possible  to  go  in  the  direction  o>f  divorcing  the 
position  from  politics.  Assessors,  assured  of  tenure,  so  long  as 
they  diligently  and  efficiently  performed  the  duties  of  their 
office,  and  freed  from  the  sway  of  political  consideration,  would 
tend  to  become  specialists  and  experts  in  the  appraisal  of  prop- 
erty. 

We  do  not  say  that  this  would  be  the  inevitable  result,  or  that 
this  plan  would  prove  an  infallible  and  complete  solvent  of  the 
assessing  problem.  But  we  do  insist  that  its  tendency  would  be 
strongly  towards  radical  improvement,  and  that  it  would  con- 
stitute a  decided  step  in  advance. 


i8 


TENURE    FOR   ASSESSORS. 

We  recommend  that  the  provision  for  tenure  apply  to  local 
assessors  now  in  office. 

It  may  be  argued  that  the  adoption  of  this  recommendation 
would  continue  the  incompetents  in  office.  That  is  true.  It 
would,  however,  also  continue  the  competent  assessors,  of  whom 
there  are  very  many  in  the  State.  The  unfit  would  not  long 
survive  the  requirements  of  the  new  order.  Here  again,  it  must 
be  emphasized  that  our  recommendations  with  respect  to  the 
appointment  and  tenure  of  assessors  are  contingent  upon  the 
adoption  of  the  plan  we  propose  for  supervisory  control  by  a 
central  authority  clothed  with  effective  powers.  This,  in  our 
judgment,  is  absolutely  essential  to  any  real  improvement  in  the 
method  and  manner  of  assessment.  It  is  just  as  idle  to  expect 
that  a  fiscal  system  will  function  properly  when  its  basic  opera- 
tion is  free  from  any  effective  control  as  it  would  be  to  expect 
a  railroad  system  to  run  successfully  which  treated  each  train  as 
a  separate  unit  and  provided  no  central  management  for  the 
direction  of  its  conductors  and  enginemen. 

With  such  supervision  as  we  suggest,  we  are  satisfied  that 
the  present  body  of  assessors  can  be  made  the  nucleus  for  an 
assessment  personnel  having  a  high  order  of  efficiency.  Under 
such  conditions,  we  are  prepared  to  guarantee  that  result. 

As  to  the  salaries  to  be  paid  to  assessors,  we  cannot  do  more 
than  make  the  general  recommendation  that  they  should  be 
compensatory;  that  is,  that  the  salary  should  have  some  such 
relation  to  the  extent  and  importance  of  the  duties  of  the  posi- 
tion as  that  which  usually  is  recognized  in  private  employment. 
There  is  no  taxing  district,  however  small,  which  could  not 
afford  to  pay  to  a  good  assessor  a  proper  compensation.  There 
is  no  taxing  district  which  can  afford  to  pay  to  an  incompetent 
or  unfit  assessor  any  wage  at  all.  Our  proposal  that  the  pay 
of  assessors  be  put  upon  a  higher  level  is  conditioned  upon  the 
putting  of  the  assessors  themselves  upon  a  higher  plane  of 
efficiency. 

This  is  a  phase  of  the  problem  as  to  which  we  need  not  indulge 
in  mere  theorizing.  Experience  shows  that  invariably  the  best 


19 

assessing  work  is  done  in  those  districts  where  the  assessors  are 
appointed  and  where  they  are  relatively  well  paid. 

ABUSE  OF  EXEMPTIONS. 

The  exemptions  of  property  from  taxation  constitute  a  phase 
of  our  taxing  problem  which  ought  to  have  very  serious  con- 
sideration. Each  year  the  amount  of  property  which  escapes 
any  share  of  the  tax  burden  assumes  larger  proportions.  The 
total  exemptions  for  1919  were  $300,539,279.  Deducting  from 
this  sum  the  value  of  $119,673,715  assigned  to  public  property, 
which  does  not  include  $69,502,691  of  public  school  property, 
the  total  of  other  property  exempted  was  $181,865,564.  The 
total  loss  of  taxes  on  this  amount  of  property,  figured  at  the 
average  rate,  was  $5,188,625.  That  loss  was  equivalent  to  an 
additional  burden  upon  taxable  property. 

The  policy  of  exempting  certain  property  from  taxation  is 
firmly  established  in  New  Jersey,  as  well  as  in  other  states,  and 
is  grounded  upon  sound  principles.  To  tax  public  property,  for 
example,  could  result  in  no  saving  to  the  taxpayer,  since  such  a 
tax  would  be  paid  by  the  public  itself.  The  exemption  of  purely 
charitable  institutions  likewise  proceeds  upon  the  theory  that 
such  institutions  render  a  service  which  would  otherwise  con- 
stitute a  charge  upon  public  revenues.  In  the  gradual  exten- 
sion of  the  list  of  exemptions,  however,  it  is  to  be  feared  that 
this  fundamental  principle  has  not  always  been  borne  in  mind, 
with  the  result  that  the  general  burden  of  taxation  has  been 
unjustly  increased.  We  would  therefore  recommend  a  drastic 
revision  of  the  tax-exempting  statutes,  with  a  view  to  restrict- 
ing them  to  only  such  property  as  shall  clearly  meet  the  test  of 
giving  to  the  general  public  an  equivalent  for  the  immunity  from 
taxation.  In  the  matter  of  exemptions,  the  aim  of  the  State 
should  be  justice  to  all  the  people,  rather  than  generosity  to  a  few. 

The  legislative  policy  has  been  to  exempt  buildings  used  for 
certain  purposes  and  the  land  whereon  they  are  situated. 

We  recommend  that  there  shall  be  such  legislation  as  will 
prevent  what  amounts  in  practice  tp  an  abuse  of  this  policy.  It 


20 

should  be  provided  that  the  extent  of  the  land  exempted  from 
taxation  shall  be  limited  to  small  areas  clearly  defined  by  statute. 
The  present  provision  is  that  the  land  necessary  for  the  fair 
use  and  enjoyment  of  the  buildings  shall  be  exempt,  not  ex- 
ceeding five  acres  in  extent.  The  effect  of  this  provision  is  to 
take  out  of  the  assessable  jurisdiction  of  some  districts  large 
tracts  of  valuable  land,  and  thereby  very  greatly  increase  the 
burden  on  the  taxable  land.  The  service  rendered  by  the  prop- 
erty thus  favored,  which  is  supposed  to  justify  the  immunity 
from  taxation  is  rarely  confined  to  the  community  in  which  it  is 
located,  but  which,  nevertheless,  is  compelled  to  bear  the  direct 
consequences  of  the  exemption  allowed.  The  effect  of  this 
policy  is  to  work  very  real  and  serious  hardships  in  certain 
municipalities.  For  this  reason,  we  recommend  drastic  limita- 
tions upon  land  exemptions.  No  land  should  be  exempted  except 
that  on  which  stands  a  building  used  for  a  purpose  entitling  it 
to  the  exemption,  plus  an  additional  allowance  of  fifty  feet  on 
all  sides.  The  suggestion  of  fifty  feet  is  of  course  largely  for 
the  purpose  of  illustration,  although  we  believe  that  the  allow- 
ance should  be  neither  very  much  smaller  nor  very  much  greater. 

The  exemption  of  cemeteries  furnishes  another  conspicuous 
example  of  an  unwarranted  increase  in  the  general  tax  burden. 
The  statute  limits  the  exemption  of  graveyards  to  ten  acres  in 
area,  but  there  is  absolutely  no  limitation  with  respect  to  ceme- 
teries. In  some  sections  of  the  State,  considerable  areas  of  land 
have  been  acquired  for  cemetery  purposes,  with  a  prodigal  pro- 
vision for  the  mortuary  needs  of  the  future,  but  with  no  consid- 
eration for  the  interests  of  living  taxpayers.  It  is,  of  course, 
the  part  of  prudence  to  set  apart  lands  for  burial  purposes  in 
excess  of  present  requirements,  but  there  is  no  sound  theory  upon 
which  lands  so  held  by  private  corporations  should  be  freed 
from  their  just  share  of  the  public  burden.  This  privilege  should 
be  confined  to  the  actual  space  occupied  by  graves  and  monu- 
ments plus  an  equivalent  area  and  to  all  lots  actually  sold  to 
bona  fide  purchasers. 

It  must  be  borne  in  mind  that  all  exemptions  from  taxation 
are  in  effect  a  contribution  from  the  public  revenues  to  the 
favored  object.  It  is  a  question  whether  it  would  not  be  in  the 


21 

public  interest  to  abolish  all  exemptions  of  private  property,  and, 
by  direct  appropriation,  measure  the  community  obligation  to 
those  institutions  which  render  a  public  service.  Such  a  policy 
would  undoubtedly  tend  to  a  more  careful  scrutiny  of  the  claims 
for  government  aid,  and  result  in  a  more  equitable  incidence  of 
that  portion  of  the  tax  burden  which  is  due  to  the  giving  of  such 
aid. 

«  We  have  given  very  careful  consideration  to  the  evidence 
and  arguments  submitted  to  the  Commission  on  behalf  of  the 
proposal  to  abolish,  either  in  whole  or  in  part,  the  tax  on  im- 
provements. The  most  insistent  advocates  of  this  change  in  our 
basis  oi  taxation  have  been  the  adherents  of  the  single  tax 
theory.  The  arguments,  which  they  advance  in  support  of  their 
position  are  ably  summarized  in  the  minority  report  of  Mr. 
Record.  Primarily,  the  proponents  of  this  plan  favor  a  reduc- 
tion in  the  taxation  of  improvements  because  they  believe  it  is 
a  step  in  the  right  direction — that  is,  a  step  toward  the  total 
exemption  of  buildings. 

Experiments  in  Australia  and  northwestern  Canada  with  the 
single  tax  or  a  modified  form  of  the  single  tax,  and  of  Pitts- 
burgh and  Scran-ton  with  the  so-called  "Graded  Tax,"  have  been 
pointed  to  as  practical  demonstrations  of  the  successful  opera- 
tion of  this  taxing  scheme. 

The  disinterested  testimony  which  we  have  been  able  to  take 
with  respect  to  the  effect  of  these  experiments  has  not  been 
sufficient  to  enable  us  to  form  a  final  conclusion,  either  as  to 
their  ultimate  success  or  failure.  The  impression  made  upon 
impartial  minds  by  all  the  available  evidence  is  that  the  results 
have  been  inconclusive.  This  certainly  was  the  impression  re- 
ceived by  the  majority  of  the  Commission  from  the  investiga- 
tion which  we  made  as  to  the  operation  of  the  graded  tax  law 
in  Pittsburgh.  We  could  find  no  evidence  there  that  the  plan 
of  gradually  reducing  the  tax  rate  on  buildings  had  thus  far 
had  any  decisive  effects  one  way  or  the  other.  It  is  only  fair 
to  say  that  the  test  has  been  conducted  under  the  abnormal  con- 
ditions due  to  the  war,  and  that  several  years  must  elapse  before 
the  maximum  reduction  in  rate  will  be  reached,  and  its  full  effects 


22 

felt.  The  testimony  of  witnesses  who  appeared  before  the  Com- 
mission indicates  that  those  who  advocated  the  adoption  of  the 
graded  tax  in  Pittsburgh  are  satisfied  with  the  results  of  its 
operation,  and  that  those  who  originally  opposed  the  plan  have 
not  changed  their  attitude.  The  fairest  judgment  that  can  be 
passed  upon  the  Pittsburgh  plan  is  that  it  is  an  experiment  which 
has  yet  to  justify  itself  by  practical  results,  but  which  is  well 
worth  watching. 

It  would  be  very  interesting  to  have  some  State  embark  upon 
the  experiment  of  the  single  tax,  but  in  view  of  the  certain 
hazards  of  such  a  venture,  we  should  prefer  to  observe  the  opera- 
tion of  the  plan  in  another  State  than  New  Jersey. 

The  Commission  has  decided  not  to  submit  bills  to  carry  into 
effect  any  of  its  recommendations.  The  drafting  of  such  bills 
involves  an  immense  amount  of  difficult  labor,  and  the  employ- 
ment of  expert  skill.  This  work  should  be  done  in  co-operation 
with  the  appropriate  legislative  committees,  and  only  done  at  all 
in  the  event  that  the  Legislature  is  convinced  of  the  necessity 
for  such  legislation.  The  Commission  suggests,  therefore,  that 
by  joint  resolution  this  Commission  or  another  commission  be 
authorized  fo  draft  such  changes  in  our  taxing  system  as  the 
Legislature  shall  deem  desirable.  By  this  plan  the  Legislature 
would  specifically  indicate  such  tax  reforms  as  it  is  prepared  in 
principle  to  approve,  leaving  the  details  of  the  proposed  laws  to 
be  worked  out  by  draughtsmen  designated  for  that  purpose,  func- 
tioning in  conjunction  with  its  own  committees. 

The  advantage  of  this  plan  of  procedure  would  be  that  the 
efforts  of  all  concerned  could  be  concentrated  upon  the  framing 
of  measures  which  would  have  a  reasonable  prospect  of  final 
passage,  and  no  time  or  energy  would  be  wasted  in  drawing1 
bills  which  would  have  no  chance  of  favorable  consideration  in 
the  lawmaking  body.  By  prompt  action,  it  ought  to  be  possible 
to  frame  such  measures  as  the  Legislature  may  wish  to  consider 
and  submit  them  in  time  to  be  disposed  of  at  the  present  session. 
Even  if  this  could  not  be  accomplished,  the  great  importance  of 
the  subjects  to  be  considered  would  fully  warrant  the  expendi- 
ture of  any  additional  time  that  might  be  essential  to  their 
study  and  the  reaching  of  wise  and  well-balanced  conclusions. 


23 


RECOMMENDATIONS    SUMMARIZED. 

Summarized,  our  recommendations  follow  : 

1.  The  abolition  of  the  personal  property  tax  and  the  sub- 
stitution therefor  of  a  tax  on  income  and  a  tax  on  business. 

2.  The  effective  control  of  local  assessments  by  supervisory 
agencies  invested  with  adequate  powers. 

3.  The  appointment  of  local  assessors  by  the  governing  bodies, 
with  tenure  and  adequate  salaries  ;   the  present  assessors  to  con- 
tinue in  office. 

4.  The  lands  exempted   from  taxation  to  be  materially  re- 
stricted in  area. 

Respectfully  submitted, 
FRANK  B.  JESS, 
ARTHUR  N.  PIERSON, 
GEORGE  T.  SMITH, 
GEORGE  L.  RECORD, 

(With  reservations  as  hereinafter  stated) 

CLARENCE  E.  CASE. 

(With  reservations  as  hereinafter  stated) 


Minority  Report  by  Mr.  Record. 


I  find  myself  under  the  necessity  of  submitting  a  minority 
report,  owing  to  the  fact  that  I  am  unable  to  agree  with  the 
majority  of  my  colleagues  in  the  plan  for  the  substitution  of  an 
income  tax  for  the  personal  property  tax. 

I  regret  to  differ  with  my  colleagues  upon  the  income  tax 
question,  because  I  am  satisfied  they  have  given  the  subject  very 
careful  study,  and  they  are  men  whose  judgment  commands  my 
respect. 

While  I  heartily  endorse  the  recommendation  of  the  majority 
of  the  Commission  for  the  abolition  of  the  personal  property  tax, 
for  the  reasons  stated  in  the  report  and  for  other  reasons,  I  am, 
however,  constrained  to  advise  the  Legislature  against  the  adop- 
tion of  a  State  income  tax  for  the  following  reasons : 

i .  It  violates  the  principle  upon  which  I  think  we  should  read- 
just our  system  of  taxation,  to  wit :  the  idea  of  attracting  people 
to  New  Jersey  to  establish  businesses  and  build  homes,  by  offer- 
ing superior  attractions  to  business  men  and  home-seekers  in  the 
matter  of  taxation  to  those  offered  by  other  States  in  the  Union, 
and  particularly  Pennsylvania  and  New  York.  New  York  has 
adopted  the  State  income  tax,  and  if  we  adopt  it  we  can  offer  no 
superior  advantages  over  New  York  in  that  respect.  On  the 
other  hand,  Pennsylvania  not  only  has  no  State  income  tax, 
but  in  all  of  its  industrial  centres  personal  property,  such  as 
machinery  and  stocks  in  trade,  either  is  entirely  exempt  from 
taxation  or  carries  only  a  nominal  tax,  while  in  the  great  cities 
of  Pittsburgh  and  Scranton,  not  only  is  personal  property  entirely 
exempt  from  taxation,  but  they  also  have  a  graded  building  tax 
law  under  which  the  assessments  on  buildings  are  being  reduced 
gradually  until  the  assessment  on  buildings  shall  finally  be  fifty 
per  cent,  of  full  value,  while  the  land  tax  assessments  remain  at 
full  value. 

25 


26 

If  we  adopt  the  income  tax,  therefore,  we  lose  all  chance  of 
securing  an  advantage  in  taxation  in  competition  with  New  York, 
and  are  heavily  handicapped  in  competition  with  the  more  favor- 
able tax  conditions  established  in  Pennsylvania. 

2.  A  State  income  tax  has  many  admitted  defects.     In  order 
to  enforce  it  we  will  have  to  set  up  a  bureau  of  collection,  which 
will  grow  in  size  from  year  to  year,  and  finally  become  very 
expensive.    This  bureau  will  pry  into  everybody's  business,  turn 
an  army  of  inquisitors  upon  the  business  men  of  our  State,  and 
all  the  secrets  of  every  business  man  of  the  State  will  be  on  file 
at  Trenton,  subject  to  the  inspection  of  any  competitor  who  can 
get  the  ear  of  powerful  politicians.    The  evil  possibilities  of  such 
a  condition  are  obviously  very  great,  and  the  danger  of  such 
information  being  used  for  political  or  other  wrongful  purposes 
is  apparent. 

3.  The  greater  part  of  the  personal  property  tax  of  this  State 
is  collected  from  manufacturers.    The  small  householder  and  rent 
payer  is  either  not  taxed  at  all  or  pays  a  very  nominal  tax,  or  is 
allowed  to  evade  the  tax.    The  substitution  of  an  income  tax  for 
the  personal  property  tax,  therefore,  would  enable  the  large  man- 
utacturers  to  shift  a  part  of  their  tax  burden  upon  those  less  able 
to  pay  taxes,  instead  of  shifting  it  upon  the  owners  of  idle  land, 
where  it  would  encourage  development  and  business. 

4.  An  income  tax  carries  a  constant  temptation  to  perjury  in 
making  up  false  returns,  and  this  temptation  is  in  direct  propor- 
tion to  the  amount  of  the  tax  to  be  paid.    The  result  is  likely  to 
be  the  constant  evasion  of  this  tax  on  the  part  of  many  unscru- 
pulous men  who  are  most  able  to  pay  it,  and  the  full  collection 
of  the  tax  on  the  part  of  those  less  able  to  pay  it,  who  are  too 
honest  to  evade  it. 

5.  The  imposition  of  an  income  tax  is  in  violation  of  the  prin- 
ciple that  should  obtain  in  all  tax  reforms,  to  wit:    simplicity, 
economy  and  certainty  of  collection.    The  income  tax,  instead  of 
simplifying  our  tax  system,  adds  a  new  tax  which  can  only  be 
collected  by  the  creation  of  another  complicated,  expensive  and 
inquisitorial  State  bureau. 


27 

6.  The  method  of  administering  the  income  tax  recommended 
by  my  colleagues  is  that  the  tax  should  be  first  collected  by  the 
State,  and  then  distributed  to  the  municipalities  so  as  to  make  up 
to  each  municipality  the  deficit  created  by  the  abolition  of  the 
personal  property  tax.    It  is  admitted  that  the  effect  of  this  would 
be  that  money  will  be  collected  in  income  taxes  from  the  citizens 
of  many  municipalities  in  excess  of  the  deficit  created  by  the 
abolition  of  the  personal  property  tax  in  those  municipalities,  and 
that  this  excess  money  will  in  turn  be  paid  by  the  State  to  other 
municipalities  where  the  income  tax  collections  will  be  less  than 
the  amount  of  the  present  personal  property  tax.     This  in  effect 
enables  the  citizens  of  one  community  to  levy  a  part  of  their  local 
taxes  upon  the  citizens  of  other  communities,  which  is  an  injus- 
tice so  glaring  that  it  is  not  likely  to  be  long  endured. 

7.  There  is  no  necessity  for  substituting  an  income  tax  for  the 
personal  property  tax.     Our  investigations  show  that  if  the  tax 
on  personal  property  was  abolished  and  the  deficit  made  up  by 
increasing  the  rate  upon  land  and  buildings,  eighty  per  cent,  of 
the  deficit  would  be  paid  by  -the  same  people  who  now  pay  the 
personal  property  tax.     The  amount  of  personal  property  taxes 
throughout  the  State  is  approximately  $13,000,000,  which  is  only 
hiteen  per  cent,  of  the  total  taxes  on  property  in  the  State.    The 
shifting  of  twenty  per  cent,  of  this  tax,  which  would  be  only 
$2,600,000,  from  those  who  at  present  pay  to  other  taxpayers, 
•would  be  very  easily  absorbed.     The  abolition  of  this  tax  would 
therefore  involve  only  a  very  slight  increase  in  the  tax  rate,  and 
if  we  shifted  this  tax  to  the  land  values  alone  it  would  result  in 
an  actual  decrease  in  the  amount  of  tax  paid  by  the  great  majority 
of  our  taxpayers.     It  is  thus  apparent  that  we  could  abolish  the 
personal  property  tax  and  absorb  the  deficit  by  increasing  the  tax 
rate  on  real  estate  without  any  disturbing  shock  to  industry  or 
property  interest,  while  the  increased  rate  upon  land  values  would 
be  a  distinct  advantage  for  reasons  hereinafter  set  forth.     The 
ideal  method  is  to  make  up  the  personal  property  tax  deficit  by 
increasing  the  tax  upon  land  values. 

It  seems  to  me  clear,  therefore,  that,  it  is  plainly  in  the  interest 
of  the  State  to  make  up  the  deficit  from  the  abolition  of  personal 


28 

property  taxation  by  increasing  the  rate  upon  land  and  buildings 
(preferably  upon  land),  rather  than  to  resort  to  the  cumbersome, 
expensive,  inquisitorial,  bureaucratic  experiment  of  an  income 
tax. 

These  facts  and  reasons  seem  to  me  to  show  clearly  the  un- 
wisdom of  the  adoption  of  the  income  tax  as  a  part  of  our  taxing 
system  in  this  State  at  this  time. 

LAND  VALUE  TAXATION. 

The  most  important  and  the  most  promising  improvement  in 
our  tax  system  would  be  the  abolition  of  all  taxes,  not  only 
upon  personal  property,  such  as  merchandise,  stocks  in  trade, 
raw  material,  machinery,  agricultural  and  other  tools,  and 
trade,  raw  material,  machinery,  agricultural  and  other  tools,  and 
the  live  stock  and  crops  of  farmers,  but  upon  all  buildings  and 
other  improvements  upon  land,  and  raising  all  taxes  for  local 
purposes  by  increasing  the  rate  of  taxation  upon  land  values. 
The  arguments  for  this  taxing  method  can  be  summarized  as 
follows : 

As  a  mere  fiscal  method  it  is  the  simplest,  most  economical 
and  most  just  of  any  form  of  taxation.  Land  lies  out-of-doors, 
and  its  value  is  generally  known  and  established  by  frequent 
sales.  It  is  therefore  the  easiest  kind  of  property  to  correctly 
assess,  and  the  tax  is  for  the  same  reason  the  hardest  to  evade. 
If  our  assessors  were  required  to  assess  nothing  but  land,  the 
cost  of  assessing  taxes  would  be  reduced  to  a  minimum,  and  the 
necessity  of  yearly  inspections  of  buildings  and  property  of  all 
kinds,  with  the  liability  to  error  and  the  possibility  of  favoritism 
and  corruption,  would  be  entirely  eliminated. 

The  exemption  of  buildings,  improvements  and  personal 
property  from  taxation,  if  adopted  by  New  Jersey,  would  give 
this  State  a  very  powerful  advantage  in  competition  with  New 
York  and  Pennsylvania  in  attracting  men  who  wish  to  build 
homes  or  establish  businesses.  The  reason  of  this  is  that  under 
this  taxing  system,  while  the  rate  of  taxation  would  be  larger 
and  the  actual  amount  of  taxation  levied  upon  any  particular 


piece  of  land  would  be  increased,  the  total  tax  paid  by  the  aver- 
age owner  o<f  business  improvement  or  by  the  average  home 
owner,  would  be  materially  less  than  the  existing  tax  at  the  ' 
lower  rate,  which  covers  land,  buildings  and  personal  property. 
In  a  general  way  this  tax  would  work  out  so  that  any  person 
whose  building  and  personal  property  values  were  assessed 
higher  than  the  land  values,  would  save  in  the  amount  of  his 
actual  tax  bill,  and  any  person  whose  improvements  and  personal 
property  values  were  assessed  lower  than  the  value  of  the  land, 
would  pay  more  in  taxes. 

Therefore,  as  long  as  the  other  States  in  the  Union,  particu- 
m  larly  New  York  and  Pennsylvania,  retain  the  system  of  taxa- 
tion of  buildings,  improvements  and  personal  property,  if  we  ex- 
empted such  property  from  taxation,  we  would  be  able  to  hold 
out  a  material  advantage  over  such  States. 

That  this  idea  has  real  substance  is  proved  by  the  fact  that 
one  of  the  great  Trust  Companies  of  Baltimore,  Maryland,  has 
been  putting  display  advertisements  in  the  New  York  papers 
calling  attention  to  the  fact  that  Baltimore  is  now  offering  the 
inducement  of  substantial  exemptions  from  taxation  of  im- 
provements and  personal  property,  and  the  financial  institutions 
of  many  of  the  Northewestern  Canadian  cities  where  this  system 
has  been  adopted  in  whole  or  in  part,  extensively  advertise  this 
tax  exempt  feature  as  a  powerful  reason  for  the  location  of 
business  men  and  home  seekers  in  their  localities. 

It  is  my  personal  judgment  that  if  we  adopted  this  system  in 
New  Jersey  the  result  in  a  very  short  time  would  be  to  at  least 
double  the  population  of  the  State,  with  a  resulting  prosperity 
to  the  State  which  can  be  secured  in  no  other  way. 

The  effect  of  exempting!  buildings  and  personal  property 
from  taxation  would  be  to  offer  a  premium  upon  improvements 
and  the  building  of  homes  and  the  establishment  of  businesses, 
and  to  reverse  our  present  stupid  policy  of  penalizing  industry, 
thrift  and  improvement,  and  offering  a  reward  for  the  holding 
of  land  out  of  use.  In  the  last  analysis  all  wealth  comes  out  of 
the  land.  Every  piece  of  idle  land  is  therefore  a  potential  source 
for  the  employment  of  labor  and  the  production  of  additional 
wealth.  Our  present  system,  by  undervaluing  land  and  taxing 


3° 

the  man  who  makes  an  improvement  upon  land,  or  produces 
wealth,  according  to  the  value  of  his  improvement  or  wealth  pro- 
duction, puts  a  premium  upon  holding  land  out  of  use,  and  thus 
obstructing  production,  and  puts  a  penalty  upon  those  who  use 
land  for  the  production  of  wealth. 

There  is  nothing  more  stupid  and  unbusinesslike  than  this 
feature  of  our  taxing  system.  In  the  case  of  personal  property 
the  glaring  injustice  of  this  proposition  has  become  so  plain  that 
public  opinion  now  demands  the  abolition  of  this  tax,  but  the 
same  principle  applies  to  the  taxation  of  buildings  or  other  im- 
provements upon  land. 

The  primary  object  of  taxation  is  of  course  to  raise  money 
to  defray  public  expenses,  but  taxation  carries  with  it  what  the 
economists  call  "the  incidence  of  taxation" — that  is  to  say,  cer- 
tain taxes  have  certain  effects  besides  that  of  raising  money.  A 
familiar  illustration  is  that  of  the  protective  tariff.  We  not  only 
collect  money  towards  the  expenses  of  our  national  government 
by  our  tariff  system,  but  the  effect  of  the  tariff  is  to  protect 
American  industry  as  it  is  called,  that  is  to  say,  to  encourage  it. 
In  the  case  of  the  tariff  those  who  believe  in  protection  argue 
for  the  system  upon  this  express  ground,  that  the  "incidence"*  of 
the  tax  puts  a  premium  upon  American  business.  The  same 
argument  applies  in  an  exactly  reverse  way  to  the  taxation  of 
personal  property  and  buildings  and  improvements.  The  "inci- 
dence" of  this  tax  is  to  discourage  enterprise,  thrift,  improve- 
ments and  business. 

The  land  value  tax  has  the  precisely  opposite  "incidence"  or 
effect.  It  encourages  the  devotion  of  land  to  its  most  productive 
use,  and  by  exempting  the  products  of  labor  and  capital  from 
taxation  puts  a  direct  premium  upon  the  creation  of  wealth  by 
labor  and  capital. 

Under  the  land  value  tax  system  no  owner  of  idle  land  would 
have  any  hope  that  it  would  increase  in  value,  as  the  increase  in 
the  value  of  land  which  would  accompany  the  growth  of  the 
community  would  be  absorbed  by  the  community  in  the  tax. 

Therefore,  there  would  be  no  inducement  to  hold  land  for 
speculation  or  as  an  aid  to  monopoly.  The  owner  of  idle  land 


would  be  under  a  continual  pressure  either  to  devote  it  to  its 
most  profitable  use,  or  to  sell  it  to  somebody  who  would.  Theo- 
retically, taking  the  country  over,  there  is  more  land  than  there 
are  people  to  use  it,  but  if  we  applied  this  principle  in  New  Jersey, 
in  my  judgment  every  acre  of  land  in  our  State  that  is  capable 
of  productive  use  would  find  a  ready  demand  from  the  hundreds 
of  thousands  of  people  who  would  come  to  the  State,  attracted 
by  the  opportunities  for  business  and  homes  offered  by  this  new 
taxing  system. 

The  land  value  tax  would  put  an  end  to  the  unjust  appropria- 
tion by  private  owners  of  the  values  of  land  which  are  created, 
not  by  the  owner,  but  by  the  growth  of  the  community  and  the 
enterprise  of  its  citizens.  Under  the  present  system  men  are 
tempted  to  hold  land  out  of  use  in  the  confident  belief,  justified 
by  experience  in  most  cases,  that  the  continual  growth  of  the 
community,  the  expenditures  of  citizens  and  corporations  in  the 
erection  of  improvements,  and  the  creation  by  the  municipality 
of  municipal  improvements,  will  enhance  the  value  of  the  land 
so  owned  without  any  effort  on  the  part  of  the  owner,  so  that  in 
a  reasonable  number  of  years  he  can  reap  a  great  profit.  Such 
investments  involve  no  employment  of  labor  and  no  benefit  to  the 
community.  Under  this  system  men  reap  where  others  have 
sown — they  get  something  for  nothing.  A  system  which  permits 
this  result  is  plainly  an  immoral  system,  and  should  be  abolished 
in  the  interest  of  common  honesty. 

A  national  example  of  this  point  can  be  seen  in  the  fortunes 
of  the  Astor  family  and  the  old  land  owning  families  of  New 
York. 

A  conspicuous  example  in  New  Jersey  is  seen  in  the  result  of 
the  construction  of  the  Hudson  River  McAdoo  Tubes.  Large 
sums  of  money  have  been  realized  in  the  vicinity  of  some  of  the 
stations  of  this  Tube,  especially  around  Summit  Avenue  in  Jersey 
City  and  the  Park  Place  terminal  in  Newark,  by  landowners  who 
never  contributed  any  service  or  risked  a  dollar  in  the  construc- 
tion of  the  Tubes. 

A  conspicuous  illustration  occurred  in  the  vicinity  of  the  Sum- 
mit Avenue  Tube  station  in  Jersey  City.  Arthur  Brisbane,  the 


32 

well-known  journalist,  bought  some  land  adjoining  the  Hudson 
Tubes  for  about  $50,000,  and  the  other  day  he  leased  it  for  a 
period  of  twenty-one  years  at  a  rental  which  nets  him  six  per 
cent,  upon  $250,000.  As  the  lessee  is  to  build  the  building  and 
pay  all  taxes,  Mr.  Brisbane  has  thus  added  to  his  fortune  over 
$200,000  without  rendering  any  service  of  any  kind  in  return. 

All  profits  made  by  speculation  in  land  involve  this  element  of 
getting  something  for  nothing.  The  injustice  of  this  system  is 
emphasized  as  applied  to  this  particular  improvement  by  the  fact 
that  the  men  who  furnished  the  money  for  the  building  of  the 
McAcloo  Tubes  lost  heavily  as  the  result  of  their  investment 
because  of  the  fact  that  the  improvement  cost  more  than  was 
estimated.  These  men  risked  their  money  in  the  construction  of 
a  most  marvelous  improvement  which  contributes  to  the  con- 
venience and  comfort  of  hundreds  of  thousands  of  our  people, 
and  has  brought  into  our  State  a  very  large  number  of  people. 
As  a  reward  for  this  service  we  pounce  upon  this  company  and 
penalize  it  several  hundred  thousand  dollars  a  year  in  taxes,  al- 
though the  improvement  is  underground,  occupies  no  valuable 
space,  and  requires  very  little  or  no  municipal  expense  for  fire, 
police  or  other  protection,  and  we  allow  the  direct  money  benefits 
of  this  gigantic  enterprise,  represented  by  increased  land  values, 
to  go  into  the  pockets  of  speculators  who  never  contributed  any 
service  or  risked  a  dollar  in  the  carrying  out  of  this  great  enter- 
prise. 

The  same  principle  applies,  only  in  a  less  dramatic  manner,  to 
every  transaction  in  land  by  which  a  speculator  absorbs  a  profit. 

This  feature  of  our  existing  taxing  system  is  the  most  powerful 
factor  which  holds  back  the  development  of  our  civilization.  It 
keeps  out  of  use  land  which  ought  to  be  devoted  to  the  production 
of  wealth,  and  thereby  prevents  the  creation  of  an  immense  num- 
ber of  jobs  for  idle  or  underpaid  men,  and  greatly  diminishes  the 
total  possible  production  of  wealth  for  distribution  among  our 
people.  It  is  the  most  powerful  single  element  working  at  all 
times  for  the  increasing  of  the  cost  of  living,  the  creation  of 
unearned  fortunes,  and  the  shutting  off  of  opportunities  for  the 
profitable  employment  of  men. 


33 

Fortunately,  we  are  not  compelled  to  rely  solely  upon  the  fore- 
going reasoning,  powerful  as  it  is,  in  support  of  the  land  value 
tax.  Various  applications  of  it  in  actual  practice  have  taken 
place  in  different  countries  of  the  world.  It  has  for  twenty  years 
been  making  steady  progress  in  the  municipalities  of  Australia, 
always  with  satisfactory  results.  Many  of  the  municipalities  of 
Northwestern  Canada,  including  some  large  cities,  have  for 
several  years  exempted  buildings  and  personal  property  of  every 
kind  from  taxation,  and  raised  all  of  their  municipal  taxes  by  a 
single  tax  upon  land  values. 

An  analysis  of  the  land  assessments  of  various  Northwestern 
Canada  cities  affords  a  graphic  illustration  of  the  way  our  land 
values  are  under  assessed.  Canadian  cities  of  over  50,000  in- 
habitants show  an  assessment  for  land  values  of  from  $900  to 
$1,200  per  capita,  while  the  large  cities  of  New  Jersey  average  a 
per  capita  assessment  of  land  values  of  not  exceeding  $500.  We 
are  thus  in  practice  exempting  land  values  to  the  extent  of  fifty 
per  cent.,  while  the  recent  tendency  has  been  to  push  the  assess- 
ment of  building  values  close  to  one  hundred  per  cent.  This 
system  in  Canada,  so  far  as  I  can  learn,  has  met  with  general 
satisfaction,  except  only  among  those  whose  sole  business  is  to 
speculate  in  land. 

The  cities  of  Pittsburgh  and  Scranton  have  also  commenced 
to  apply  this  system.  The  Commission  visited  Pittsburgh,  and 
the  facts  there  ascertained  are  substantially  as  follows : 

In  191 1  the  city  of  Pittsburgh  commenced  to  exempt  machinery 
and  stocks  in  trade  and  raw  materials  used  in  manufacture.  In 
effect  in  that  city  this  amounted  to  the  practical  exemption  of 
great  numbers  of  manufacturing  plants  for  the  reason  that  much 
of  the  business  of  Pittsburgh  is  confined  to  various  manufactur- 
ers of  iron  products,  and  such  factories  consist  mainly  of  expen- 
sive machinery  protected  from  the  weather  by  a  building  which 
is  nothing  but  a  shed.  A  plant  worth  a  hundred  thousand  dollars 
will  often  be  composed  of  machinery  worth  $95,000,  with  a  build- 
ing costing  not  more  than  $5,000.  This  plan  worked  so  well  in 
Pittsburgh  that  in  1914  the  policy  was  adopted  of  reducing  the 
taxes  upon  buildings  ten  per  cent,  every  three  years  until  the 
assessment  should  finally  reach  fifty  per  cent,  of  full  value. 


34 

Three  increments  of  ten  per  cent,  each  have  been  deducted  so  far 
from  the  assessed  values  of  buildings.  The  first  effect  of  this 
law  was  that  the  assessors  showed  a  tendency  to  increase  assess- 
ments of  buildings,  which  had  theretofore  been  under  assessed, 
at  least  as  much  as  the  amount  of  the  deduction  required  by  law. 
This  in  effect  was  nothing  but  remedying  the  administrative  de- 
fects of  the  former  system,  but  it  necessarily  temporarily  retarded 
and  obscured  the  effect  of  the  law  requiring  the  reduction  of  build- 
ing assessments. 

The  significant  and  controlling  fact  which  came  out  in  our 
investigation,  however,  was  that  during  the  first  three  years  after 
this  law  passed,  a  vigorous  attempt  was  made  in  the  Legislature 
each  year  to  repeal  the  law,  but  now  it  is  impossible  to  get  any 
member  of  the  Legislature  from  Pittsburgh  or  Scranton  districts 
to  introduce  a  repealer  of  the  act.  To  all  those  who  understand 
politics  this  means  that  the  beneficial  effects  of  the  law  have 
become  plain  that  no  representative  of  the  people  dares  to  risk 
his  popularity  by  standing  openly  for  a  repeal  of  the  law. 

Baltimore,  under  a  State  local  option  tax  law,  has  adopted 
the  system  of  exempting  buildings  and  personal  property  from 
taxation,  and,  as  I  have  heretofore  shown,  is  using  this  tax 
advantage  as  a  powerful  argument  to  induce  manufacturers  to 
come  to  that  city.  The  owner  of  a  $20,000,000  plant  in  Bridge- 
port, Connecticut,  is  quoted  as  saying  in  a  public  speech  in 
Baltimore  the  other  day,  that  if  he  removed  his  plant  to  Balti- 
more, the  saving  in  taxation  under  the  Baltimore  system:  of 
exemption,  would  pay  two-thirds  of  the  cost  of  his  plant  in 
twenty  years. 

OBJECTIONS    TO    THE    LAND   VALUE    TAX. 

It  is  pertinent  to  consider  some  of  the  objections  to  the  land 
value  tax : 

i.  It  is  said  that  land  and  real  estate  generally  cannot  carry 
any  larger  burden  of  taxation.  The  fallacy  of  this  argument  is 
the  assumption  that  land,  buildings  and  personal  property  pay 
taxes.  Only  human  beings  pay  taxes,  and  all  taxes  paid  upon 


35 

personal  property  or  other  improvements  are  promptly  shifted  to 
the  consumer,  and  while  a  large  amount  of  land  is  held  out  of 
use  for  speculation,  the  tax  upon  improved  land  is  also  shifted 
to  the  consumer.  If  we  abolish  the  tax  on  personal  property  and 
make  up  the  deficit  by  increasing  the  tax  upon  buildings  and  land, 
this  tax  is  collected  by  the  first  payer  from  the  proceeds  in  rents. 
The  change  advocated  in  our  system  of  taxation  does  not  change 
this  fact,  but  the  only  difference  would  be  that  a  portion  of  the 
taxes  now  paid  by  those  who  have  improved  property  would  be 
shifted  over  on  the  shoulders  of  owners  of  idle  and  unimproved 
land,  which  is  in  every  way  a  benefit  to  the  community,  even  if 
it  involves  a  loss  to  the  landowner.  As  most  landowners  are 
also  engaged  in  other  business,  any  loss  they  might  suffer  in  the 
value  of  their  land  would  be  made  up  in  the  general  prosperity 
of  the  business  in  which  they  are  interested.  The  land  tax,  by 
taking  the  tax  off  buildings,  would  lower  rents  for  business 
and  dwelling  spaces,  and  to  that  extent  would  be  equivalent  to  an 
increase  in  wages  or  in  business  profits. 

2.  It  is  said  that  there  would  be  such  a  stimulus  to  building 
that  it  would  result  in  over  building.     That  is  a  characteristic 
of  the  present  system.    Every  few  years  our  communities  become 
over-built,  and  then  a  financial  panic  or  depression-  results  in  a 
period  of  stagnation.    Certainly  the  new  system  could  not  be  any 
worse  than  the  existing  system  in  that  respect.     As  a  matter  of 
fact,  under  any  system  people  construct  buildings  when  in  their 
judgment  they  can  be  rented  or  sold  with  a  profit,  and  they  will 
always  do  so.    No  one  owning  land  will  build  a  building  upon  it 
under  the  new  system  unless  he  is  convinced  that  it  will  net  him  a 
profit.     Under  that  system  he  may  be  mistaken,  as  he  often  is 
under  the  present  system,  but  it  is  not  the  business  of  the  State 
to  guarantee  him  against  mistakes  in  judgment.     In  view  of 
the  abnormal  shortage  of  houses  and  buildings  of  every  kind 
in  every  city  of  our  State,  the  danger  of  over  building  is  not  a 
serious  argument. 

3.  It  is  claimed  that  this  system  will  operate  to  inflict  loss  upon 
men  who  own  land.    The  answer  is  that  the  wisdom  of  the  sys- 
tem must  be  determined  by  the  question  whether  or  not  it  will 


36 

contribute  to  the  common  good;  if  so,  any  incidental  damage  to 
individuals  must  be  endured.  To  say  otherwise  is  to  hold  that 
projects  for  the  common  good  cannot  be  carried  out  if  they  result 
in  the  financial  injury  of  anybody.  The  abolition  of  slavery 
and  the  prohibition  law  are  illustrations  in  point.  The  greatest 
good  to  the  greatest  number  is  always  a  sound  rule  in  a  democracy, 
which  individual  losses  cannot  be  allowed  to  obstruct. 

4.  It  is  claimed  that  the  land  tax,  by  inducing  every  landowner 
to  make  the  most  profitable  use  of  his  land,  will  lead  to  congestion 
in  living  and  business  buildings.  The  answer  to  this  is  that  the 
crowded  tenement  and  the  business  skyscraper  are  the  two  lead- 
ing characteristics  of  the  present  system.  The  change  in  policy 
which  I  advocate  would  tend  to  bring  into  active  use  land  which 
is  now  held  out  of  use,  and  necessarily  the  tendency  of  this  sys- 
tem must  be  the  very  reverse  of  congestion;  the  tendency  would 
be  to  scatter  improvements  and  to  use  more  land,  particularly  in 
home  building,  because  the  owner  of  a  building  could  use  more 
land  than  is  now  used  and  still  pay  a  smaller  tax  bill,  while  the 
general  effect  of  the  system  would  be  to  make  land  cheaper  in  the 
end. 

Respectfully  submitted, 

GEORGE  L.  RECORD. 


Minority  Report  by  Senator  Case. 


In  the  final  analysis,  the  best  form  of  tax  is  that  which  best 
suits  the  taxpayer.  Taxes  are  the  contribution  of  the  citizen  to 
the  expenses  of  operating  the  State,  and  the  preference  of  the 
citizen  should  be  considered  in  selecting  the  tax  method.  It 
appears  that  the  problem  before  us  is  not  merely  one  of  devis- 
ing more  equitable  methods  of  raising  the  same  sum  of  money 
that  is  available  at  present;  public  disbursements  have  reached 
the  point  where  additional  funds  must  very  shortly  be  forth- 
coming. 

Elsewhere  in  this  country  experiments  with  the  income  tax 
(except  the  Federal  Income  Tax)  have  been  supplemental  to 
and  not  in  substitution  of  the  personal  property  and  other  taxes. 
The  proposal  in  the  majority  report  is  to  wipe  out  the  personal 
property  tax  entirely  and  to  substitute  in  lieu  thereof  a  combi- 
nation of  income  tax  and  business  tax. 

I  am  not  prepared  at  this  time  to  subscribe  to  that  recom- 
mendation, for  the  reason  that  in  my  opinion  we  have  not  suf- 
ficient data  upon  which  to  base  the  ultimate  workings  of  the 
change  in  this  State,  and  for  the  additional  reason  that  there 
has  not  been  a  sufficient  consideration  or  expression  of  opinion 
by  the  people  and  the  press  to  indicate  that  the  change  will  meet 
with  popular  satisfaction.  There  is  nothing  that  concerns  the 
people  more  closely  than  the  question  of  taxes,  and  in  my  opinion 
no  radical  change  should  be  made  in  the  taxing  system  until 
the  proposed  change,  with  its  definite  provisions,  has  been  before 
the  public  for  a  sufficiently  long  period  to  indicate  an  unmis- 
takable trend  of  opinion.  It  is  certain  that  a  great  deal  of  State 
machinery  will  be  necessary  to  collect  the  income  tax;  that  the 
return  therefrom  will  not  net  the  several  communities  in  the  same 
proportion  as  those  communities  now  receive  their  funds,  and 
that  an  artificial  division  will  need  to  be  adopted.  It  is  obvious 
that  a  community  that  produces  a  volume  of  tax  from  which 

37 


appropriation  is  made  to  other  communities  will  resist  that 
method  and  ultimately  overcome  it. 

Even  the  proponents  of  an  income  tax  are  by  no  means  unani- 
mous in  favoring  the  form  of  income  tax  that  is  suggested  in 
the  majority  report.  The  Jersey  City  Chamber  of  Commerce 
gave  very  careful  attention  to  the  work  of  this  Commission,  and 
recommended  an  income  tax  at  a  flat  rate.  The  representatives 
of  the  Chamber  of  Commerce  reported  against  an  income  tax 
unless  at  a  flat  rate.  The  proposal  in  the  majority  report  is  for 
a  minimum  rate  of  one  per  cent,  at  the  lower  levels  of  income, 
and  not  over  six  per  cent,  at  the  higher  levels. 

Nor  have  we  adequate  data  upon  which  to-  base  the  volume 
of  money  that  is  to  be  produced  by  the  business  tax  which  it  is 
proposed  to  levy  upon  corporations  in  lieu  of  the  income  tax, 
the  latter  tax  being  proposed  for  individuals  only. 

My  conclusion  with  regard  to  the  proposed  income  tax  and 
business  tax  is  that  we  do  not  yet  know  enough  about  their 
operation  in  this  State,  or  about  the  attitude  of  the  public  mind 
toward  them,  for  us  to  advocate  placing  them  upon  the  statute 
books  at  this  time.  Haste  had  best  be  made  slowly. 

I  am  not  prepared  to  acquiesce  in  the  recommendation  that 
the  State  be  divided  for  assessment  purposes  into  a  small,  number 
of  assessment  districts,  under  the  control  and  supervision  of  the 
State  Board  of  Taxes  and  Assessment. 


Supplementary  Statement  by  Mr.  Jess. 


I  am  of  the  opinion  that  there  are  sound  reasons  for  classifying 
improvements  upon  land  for  taxation  and  giving  all  the  prop- 
erty in  that  class  the  advantage  of  a  differential  in  the  rate. 
There  is  a  distinct  basis  for  differentiating  between  land  and 
the  improvements  upon  land.  Land  held  in  private  ownership 
renders  no  service  to  the  public.  It  is  a  public  asset  only  to  the 
extent  to  which  it  contributes,  through  taxation,  to  the  support 
of  the  government.  On  the  other  hand,  buildings  serve  many 
useful  functions.  As  dwellings,  as  marts  of  trade,  as  the  cen- 
tres of  industry  and  production,  they  contribute  to  the  wealth 
and  welfare  of  the  community.  At  the  same  time,  they  impose 
upon  government  the  chief  burden  of  community  service,  such  as 
that  of  providing  schools,  streets,  lighting,  police  and  fire  pro- 
tection. The  primary  purpose  of  taxation  is  to  raise  revenue 
for  the  support  of  the  State.  Upon  the  soundest  principles, 
therefore,  the  policy  is  justified  of  levying  upon  that  class  of 
property  which,  from  its  nature  and  use,  occasions  a  large  part 
of  the  public  expenditures,  a  fair  proportion  of  the  taxes  essen- 
tial to  provide  for  them.  There  still  remains,  however,  the  ele- 
ment of  service  which  should  entitle  these  buildings  to  special 
treatment  in  our  taxing  scheme. 

I  also  favor  a  tax  on  the  unearned  increment  in  land  values. 

All  vacant  land,  it  is  true,  is  not  held  out  of  use  for  speculative 
purposes.  Much  of  it  is  held  by  its  owners,  not  from  choice, 
but  from  necessity.  It  is  held  because  there  is  no  market  for  it. 
In  many  cases  where  such  land  is  sold,  the  price  received  by  the 
seller  represents  little,  if  any,  return  on  his  investment.  Such 
land  is  not  held  out  of  use,  but  is  held  for  use. 

On  the  other  hand  a  great  deal  of  valuable  land  is  held  by 
the  owners  simply  for  the  profit  that  will  accrue  to  them  from 
its  sale  at  the  increased  value  resulting  from  social  demand  in 
the  future.  Again,  either  because  of  fortuitous  circumstances, 

39 


40 

or  because  of  advance  information  of  favorable  developments  to 
come,  speculators  are  enabled  to  make  large  gains  in  land  trans- 
actions. Thus  it  frequently  happens  that  the  selling  price  of  land 
is  greatly  in  excess  of  its  assessed  value  and  of  what  may  fairly 
have  been  estimated  to  be  its  market  value.  These  increases  in 
value  should  be  subject  to  a  surtax.  The  inevitable  tendency  of 
such  a  tax  would  be  to  discourage  speculation  in  land  and  to  re- 
sult in  assessments  more  nearly  approximating  true  value.  In 
addition,  it  would  assure  to  the  community  a  substantial  share  in 
the  value  which  the  community  helped  to  create. 

What  I  here  advocate  is  not  that  land  values  shall  be  confis- 
cated by  the  community,  but  that  the  community  shall  take  a  part 
of  the  increment  which  results  from  social  demand,  and  not 
from  the  efforts  of  the  owner. 


RETURN  TO  DESK  FROM  WHICH  BORROWED 

DOCUMENTS  DEPT. 

This  book  is  due  on  the  last  date  stamped  below,  or 

on  the  date  to  which  renewed. 
Renewed  books  are  subject  to  immediate  recall. 


35628 


JAN  1  1  1960 





General  Library 
University  of  California 
Berkeley 

LD  21-100m-6,'56 
(B9311slO)476 

